Many real estate markets in the U.S. no longer favor buyers. Inventory is tight and competition is heating up. In fact, Mark Zandi, chief economist at Moody’s Analytics, recently told The Washington Post that, “Market conditions should be good for owners looking to sell their homes. The historically low number of new and existing homes for sale makes it even more of a seller’s market.”
Homebuyers are not powerless, however. Even if the exceptional deals of the Great Recession are long gone, tips for homebuyers can help you buy successfully. Here are five ways to make sure you don’t jeopardize the deal when buying in a seller’s market:
1. Negotiate Appropriately
If the market strongly favors the seller, a lowball offer may not be the best tactic. However, the rules may change when market inventory is high, which may give the buyer more leverage to submit offers below asking price.
Understand that skilled negotiators influence the other party’s perception; they don’t necessarily alter reality. Sellers may say that they turned down better offers than yours, but you don’t know if that’s true. An approach to consider is to inform the seller of other competitive properties that you may be considering. This tactic may provide added pressure to help you close the deal.
2. Be Preapproved or Pay Cash
If you want to negotiate from a position of strength, be prepared to close quickly. In other words, nail down your financing (with a mortgage preapproval, not just a prequalification) or submit a cash offer. If you haven’t been preapproved, you’re little more than a lookie loo, so expect to be treated as such.
When you’re ready to make an offer, be ready to supply a mortgage preapproval letter. Have your mortgage lender customize the amount to support your bid. For example, if you want to offer $300,000 with a $260,000 mortgage, don’t give the seller a letter that indicates that you’re actually approved for a $400,000 mortgage and a $500,000 purchase price.
3. Keep Your Offer Clean
If you want a seller to say “yes”, don’t include a bunch of little demands or requests in your offer letter. For example, if you hate the decor, keep your thoughts to yourself. After all, you can easily get rid of dated chandeliers and cheesy wallpaper later. Very few sellers enjoy having to defend their taste in furnishings or paint colors, and most want to complete the selling process quickly and get on with their lives. Because of this, it’s in your best interest to submit a clean and simple offer because fatigued sellers will likely cave gratefully.
4. Show You’re a Serious Buyer
Let sellers know that you’re ready to buy with a generous earnest money deposit. If you’re sure you can close, which is one more reason to line up your mortgage ahead of time, consider making the deposit nonrefundable. Take a page from the experienced real estate investor’s playbook and attach your earnest money deposit to your offer.
5. Get to Know the Sellers and Their Situation
Information is power. Your objective is to find out how motivated your sellers are, how much time pressure they are under and why they are selling. Is this a distress sale? Are the seller’s mortgage and property tax payments current? How much did they pay for the home? How much do they owe? Do you have any mutual friends or acquaintances? This information is readily available on government sites (try your county clerk and assessor’s office) and social media (not everyone makes their Facebook and Twitter pages private).
Keep in mind that not all sellers are hard-nosed property flippers. Once you know the situation, do what you can to establish a social connection with the sellers. Write them a letter, tell them why you love their home and let them get to know you.
Even though many real estate markets currently favor sellers, you can still offer less than the asking price without jeopardizing the deal. So whether you’re just thinking about moving, or you’ve already started your search, consider these five tips for homebuyers to successfully negotiate a final selling price.
People are also reading